Navigating Tariff Turbulence: Assessing Long-Term Investment Risks for Volvo Group in the North American Trucking Sector

The U.S. trucking industry has become a battleground for geopolitical strategy and economic self-interest. Under the Trump administration's "America First Trade Policy," tariffs on commercial trucks and critical inputs like steel and aluminum have created a volatile environment. For global players like Volvo Group, the ripple effects are profound. The company's North American operations, already reeling from a 13% year-over-year decline in Q1 2025 retail truck sales, now face a dual challenge: adapting to a protectionist trade regime while managing the uncertainty of its duration and scope.

The Tariff Landscape and Its Implications

The U.S. has imposed a 25% ad valorem tariff on commercial trucks and parts under Section 232 of the Trade Expansion Act of 1962, citing national security concerns. This follows a pattern of protectionist measures on steel and aluminum, which are critical inputs for truck manufacturing. The tariffs are not static; the ongoing Section 232 investigation into truck imports—launched in April 2025—leaves open the possibility of further restrictions, including quotas or higher duties. Mexico, the largest exporter of trucks to the U.S., and Canada, a key supplier of steel and aluminum, are particularly vulnerable.

For Volvo, which sources significant components from Europe and China, the tariffs compound operational risks. While the company has localized some production in the U.S. and reduced reliance on imported parts, the cost of compliance—such as retooling plants and redesigning supply chains—remains substantial. Moreover, the Trump administration's erratic tariff policies, including pauses and resumptions, create a climate of unpredictability that undermines long-term planning.

Strategic Adaptations and Profitability Risks

Volvo's response to tariff uncertainty has been multifaceted. The company has shifted toward high-margin models, such as the XC60 hybrid and the locally produced EX90, while scaling back unprofitable imports like the S60 and S90. However, the EX90 still relies on European-sourced components subject to 25% tariffs, eroding its competitiveness. Meanwhile, the truck division's Q2 2025 results—marked by a 6% drop in vehicle sales and a 5% decline in net sales—highlight the fragility of its North American strategy.

The company's workforce adjustments, including layoffs at U.S. facilities, underscore the human and financial costs of navigating this environment. Yet, Volvo's service division, which generates recurring revenue tied to vehicle utilization rather than new sales, offers a partial buffer. This resilience, however, may not offset the long-term risks of a fragmented supply chain and eroding market share in a sector dominated by domestic players like PACCAR and Daimler.

Long-Term Investment Considerations

The key question for investors is whether Volvo can adapt to a world where U.S. tariffs are here to stay. Three risks demand scrutiny:

1. Tariff Permanence: If the Trump administration's Section 232 framework solidifies into a long-term policy, Volvo's reliance on cross-border supply chains will remain a liability. The company's investment in U.S. production capacity—such as its planned XC60 hybrid plant—could mitigate this, but the timeline for returns is uncertain.

2. Market Demand Shifts: The "wait and see" approach of U.S. truck buyers, driven by tariff and regulatory uncertainty, has already depressed sales. If demand remains subdued, even localized production may struggle to justify capital expenditures.

3. Regulatory Volatility: The Trump administration's potential renegotiation of the EPA's greenhouse gas standards could further complicate Volvo's electrification strategy. While the EX90 represents a pivot toward sustainability, its success hinges on a stable regulatory environment.

Strategic Resilience and the Path Forward

Despite these challenges, Volvo's geographic diversification and strong European truck market share (20.1% in Q2 2025) provide a degree of insulation. Its partnerships, such as with Renault Trucks, also offer economies of scale. For investors, the critical metric will be the company's ability to balance U.S. market exposure with global opportunities.

Investment Advice

For long-term investors, Volvo Group's stock carries both opportunity and risk. The company's strategic agility—evidenced by its shift to high-margin models and localized production—suggests resilience. However, the North American sector remains a drag, and continued tariff volatility could erode confidence. A cautious approach is warranted:

• Diversify Exposure: Investors should balance their holdings with companies less reliant on U.S. trucking, such as those in logistics or electric vehicle infrastructure.
• Monitor Policy Developments: Closely track the outcome of the Section 232 truck investigation and any potential renegotiations of the USMCA.
• Assess Valuation Metrics: While Volvo's service division offers stability, its truck segment's earnings potential is clouded. A discount to intrinsic value may be necessary to justify entry.

In a world where trade policy is as unpredictable as it is powerful, the ability to adapt is the ultimate competitive advantage. For Volvo, the path to long-term profitability in North America will require not just strategic recalibration, but a reimagining of what it means to thrive in an era of tariff turbulence.